CANADA FX DEBT-C$ firms but investors await Fed clarity

Reuters Staff

3 Min Read

* Canadian dollar at C$1.0603 or 94.31 U.S. cents
* Bond prices higher across the maturity curve
By Leah Schnurr
TORONTO, Dec 10 (Reuters) - The Canadian dollar firmed
against the greenback on Tuesday, continuing to consolidate
after recent declines as investors sought clarity on the path of
U.S. monetary policy.
The loonie also got support from a bounce-back in oil
prices. U.S. crude rose $1.17 to settle at $98.51 a
barrel. The Canadian dollar touched a 3-1/2-year low last week,
hit by a more dovish Bank of Canada policy stance, recently
weaker oil prices and uncertainty over what course the U.S.
Federal Reserve would take on its stimulus program.
Fed policymakers will meet for two days next week and
investors are trying to gauge whether the central bank will
announce it is reducing its economic stimulus efforts, or
whether it will hold off until next year.
Last week's stronger-than-expected jobs data in the United
States has supported expectations the Fed could start slowing
its bond-buying program sooner rather than later.
A top Fed official on Monday gave his voice to a growing
contingent at the central bank that has argued for reducing bond
buying at the Fed's meeting next week.
"It's a question of December or January now and if it's
anything outside of that, I think it will be a bit of a shocker
to the markets," said Rahim Madhavji, president of Knightsbridge
FX.com in Toronto.
The Fed is currently buying $85 billion a month in bonds as
part of its quantitative easing, or "QE", program as it tries to
keep borrowing costs low to boost economic recovery.
Madhavji expects the loonie to trade in a range between
C$1.06 and C$1.07 until investors get further insight from the
Fed.
The Canadian dollar ended the North American
session at C$1.0603 to the greenback, or 94.31 U.S. cents,
stronger than Monday's close of C$1.0635, or 94.03 U.S. cents.
A faster timetable for the Fed is seen as a negative for the
Canadian dollar as the move is expected to reduce risk appetite
and benefit the U.S. currency.
On the domestic front, the Bank of Canada said the high
level of consumer debt and robust housing market pose an
"elevated" risk to the country's financial stability, but the
overall level of danger has fallen from six months ago.
Canadian government bond prices were higher across the
maturity curve, with the two-year up 1 Canadian cent
to yield 1.079 percent and the benchmark 10-year up
53 Canadian cents to yield 2.603 percent.